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£1.25bn funding plans announced for UK innovative firms hit by COVID-19

The Chancellor has announced measures of support worth £1.25bn for UK start-ups and businesses driving research and development in some of the most dynamic sectors of the UK economy – ranging from tech to life sciences

This page was updated on 1 February 2021. 

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Background

The funding packages that were announced early in the pandemic to support businesses did not address those that were pre-revenue generating which are developing technology and/or still in the early stages of capitalising on their market opportunities. The Chancellor’s announcement on April 20 established a £1.25bn fund seeking to address this issue. 
 
Businesses located across Greater Manchester and Lancashire can obtain fully-funded financial advice on these schemes and beyond from the Growth Hub’s Access to Finance team.  

Future Fund

*The scheme has now closed for new applicants*


The Future Fund opened for applications on Wednesday 20 May. The scheme is being delivered in partnership with the British Business Bank, and  was initially open until the end of September 2020. On 31 October, the government extended the scheme till the end of January 2021.

 The scheme is designed to provide convertible debt finance of between £125k and £5m to limited companies. 
 
The fund is structured as a “co-investment” which means that the government provides finance alongside third-party investors who must provide the same or a greater amount, also in the form of a convertible loan. To be eligible, businesses must have previously raised third-party equity investment for at least £250,000 in the past 5 years. 


What are the main points?  

  • The Future Fund programme uses a financial instrument known as a convertible loan which will have a life of 3 years. This is non-negotiable.

  • The fund loans range from £125,000 up to a maximum loan amount of £5million with third-party investors at least matching the government commitment. This means the minimum loan received by a company is £250k (£125k each from the government and the investor) with no maximum, since there is no upper limit on the amount that additional investors may co-invest.

  • This is an investor-led scheme which means the lead investor applies on behalf of itself, the company and any other investors. 

  • The rate of interest applicable will be no less than 8% (non-compounding) but may be higher for all investors (including the Future Fund) if that has been agreed between the company and investors (other than the Future Fund) prior to the Application. 

  • There is no requirement for a company to make regular repayments during the life of the loan. However, if the loan is not repaid in full at maturity after 3 years, then the convertible loan is designed to convert into equity at the next funding round, when an equity value can be negotiated between companies and investors. A business cannot repay the government loan only.

  • The structure of the Convertible Loan Agreement (CLA) does not meet existing rules for SEIS or EIS eligibility. Commentary on this can be found here.  

Is my business eligible? 

The company must: 

  • have been incorporated on or before 31 December 2019 and have previously raised at least £250k in equity investment from third party investors in the last five years (from 1 April 2015 to 19 April 2020, inclusive). Therefore, it is not available to sole traders, partnerships or new start companies.
  • be UK-registered and have  

- half or more employees UK based or

- half or more revenues from UK sales

 On 30 June, the government announced that companies which have substantial UK economic presence but have been required to incorporate their ultimate parent company in a non-UK jurisdiction solely in order to participate in an Accelerator Programme will now also qualify for the fund. Full eligibility criteria can be found on the British Business Bank’s page and further information is available through the dedicated FAQs page for non-UK parent companies.


Full details on eligibility can be found at the British Business Bank FAQs.


How to apply?  

  • Initial stages of the Application will be made by the lead investor, with the company subsequently providing and verifying information.
  • Applications must be made online at the Future Fund Portal.     
  • Companies appoint a solicitor to facilitate the payment mechanics at completion of the Convertible Loan Agreement. It is anticipated that solicitors may provide legal advice to clients interested in the scheme.
  • This scheme is subject to a range of legal elements that both investors and companies must comply with. There is a standard legal document for the Convertible Loan Agreement
  • All of the documents pertaining to the scheme can be found here.

It is imperative that all prospective investors understand this scheme. Extensive information for investors can be found at the British Business Bank FAQs for Investors and the Future Fund Portal.  

Innovate UK

Businesses can find out about UK Research and Innovation's Covid-19 related funding and projects through their website here. 

Continuity loans

Up to £210 million is available in continuity loans for existing Innovate UK award holders or applicants who are continuing, completing or following on from innovation activity that has not been supported by an Innovate UK award in the last 36 months that have a challenge in continuing a live project due to the COVID-19 pandemic. These loans range between £250,000 and £1,600,000. Continuity loans will be open for applications until 13 January 2021.

At the GC Business Growth Hub you can also read more from our Innovation team on applying for funding here or by contacting them directly.

 

Previous Funding announced

Innovate UK’s grants and loan scheme will provide £750 million of targeted support for the most R&D intensive SMEs.  This scheme is available from 15 May 2020 and aimed at:

  • SMEs currently receiving Innovate UK support, both funding and non-funding interventions
  • Enterprise Europe Network (EEN) clients and high-growth SMEs in receipt of European Innovation Council funding
  • Innovative, high growth-potential SMEs referred from Growth Hubs  

On May 15, Innovate UK provided details on the grants and loans below for existing clients. 

 
Continuity grants

Up to £90 million is available in continuity grants for existing Innovate UK award holders who are at risk of abandoning their project due to COVID-19. These grants will range between £25,000 and £250,000. Continuity grants are available until 29 May 2020.
 

How to apply

Further details and guidance will be sent to existing customers and is available in the guidance document. Find more information on the Government page here

Innovate UK also announced on May 20 that the government is doubling investment in the Fast Start Competition with an additional £20 million. The Fast Start Competition was launched in April in response to the coronavirus pandemic and supports the UK’s next generation of start-ups who are developing innovations tackling the crisis. 

On 27 June, the government also launched the Sustainable Innovation Fund, delivered by Innovate UK to support the UK’s sustainable economic recovery from COVID-19.


Businesses can apply for grant support by visiting the Innovate UK website, The first round of the competition opened on June 29 and the application closing date was on July 29. Each organisation working alone or in a collaboration could claim a maximum of £175,000.
 
Within the Sustainable Innovation Fund there is also up to £10 million available for ‘SBRI phase 1’, which is meant to help UK businesses and the public sector recover from COVID-19. It is expected that projects in this phase to range in size up to total costs of £60,000, including VAT. The competition also opened on Monday 29 June and closed August 5.

 

 

More information is available on the UK Government’s Coronavirus Business Support website. For more personalised advice call us on: 0161 237 4128 or email us at: BGH@growthco.uk 

 

The information provided is meant as a general guide only rather than advice or assurance. GC Business Growth Hub does not guarantee the accuracy or completeness of this information and professional guidance should be sought on all aspects of business planning and responses to the coronavirus. Use of this guide and toolkit are entirely at the risk of the user. Any hyperlinks from this document are to external resources not connected to the GC Business Growth Hub and The Growth Company is not responsible for the content within any hyperlinked site.

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